On January 1, 2017, McIlroy, Inc., acquired a 60 percent interest in the common stock of Stinson,
Question:
On January 1, 2017, McIlroy, Inc., acquired a 60 percent interest in the common stock of Stinson, Inc., for $312,000. Stinson's book value on that date consisted of common stock of $100,000 and retained earnings of $184,400. Also, the acquisition-date fair value of the 40 percent noncontrolling interest was $208,000. The subsidiary held patents (with a 10-year remaining life) that were undervalued within the company's accounting records by $83,200 and an unrecorded customer list (15-year remaining life) was assessed at a $58,800 fair value. Any remaining excess acquisition-date fair value was assigned to goodwill. Since its acquisition, McIlroy has applied the equity method to its Investment in Stinson account and no goodwill impairment has occurred. At year-end, there are no intra-entity payables or receivables.
Intra-entity inventory sales between the two companies have been made as follows:
| Year | Cost to McIlroy | Transfer Price to Stinson | Ending Balance (at transfer price) |
| 2017 | $132,900 | $166,125 | $55,375 |
| 2018 | 113,100 | 150,800 | 37,700 |
The individual financial statements for these two companies as of December 31, 2018, and the year then ended follow:
| McIlroy, Inc. | Stinson, Inc. | ||||||
| Sales | $ | (747,000 | ) | $ | (382,000 | ) | |
| Cost of goods sold | 490,900 | 233,200 | |||||
| Operating expenses | 200,590 | 79,400 | |||||
| Equity in earnings in Stinson | (35,946 | ) | 0 | ||||
| Net income | $ | (91,456 | ) | $ | (69,400 | ) | |
| Retained earnings, 1/1/18 | $ | (814,500 | ) | $ | (284,300 | ) | |
| Net income | (91,456 | ) | (69,400 | ) | |||
| Dividends declared | 49,700 | 20,000 | |||||
| Retained earnings, 12/31/18 | $ | (856,256 | ) | $ | (333,700 | ) | |
| Cash and receivables | $ | 291,900 | $ | 151,900 | |||
| Inventory | 274,200 | 132,400 | |||||
| Investment in Stinson | 377,467 | 0 | |||||
| Buildings (net) | 353,000 | 207,200 | |||||
| Equipment (net) | 251,900 | 90,600 | |||||
| Patents (net) | 0 | 25,300 | |||||
| Total assets | $ | 1,548,467 | $ | 607,400 | |||
| Liabilities | $ | (392,211 | ) | $ | (173,700 | ) | |
| Common stock | (300,000 | ) | (100,000 | ) | |||
| Retained earnings, 12/31/18 | (856,256 | ) | (333,700 | ) | |||
| Total liabilities and equities | $ | (1,548,467 | ) | $ | (607,400 | ) | |
Show how McIlroy determined the $377,467 Investment in Stinson account balance. Assume that McIlroy defers 100 percent of downstream intra-entity profits against its share of Stinson’s income.
Prepare a consolidated worksheet to determine appropriate balances for external financial reporting as of December 31, 2018
Consolidation EntriesAccountsMcIlroyStinsonDebitCreditNCIConsolidated Totals
Sales$(747,000)$(382,000)
Cost of goods sold490,900233,200
Operating expenses200,59079,400
Equity in earnings of Stinson(35,946)0
Separate company net income(91,456)(69,400)
Consolidated net income$0
To noncontrolling interest
To McIlroy, Inc.0
Retained earnings, 1/1(814,500)(284,300)
Net income(91,456)(69,400)
Dividends declared49,700 20,000
Retained earnings, 12/31$(856,256)$(333,700)$0
Cash and receivables$291,900$151,900
Inventory274,200132,400
Investment in Stinson377,4670
Buildings (net)353,000207,200
Equipment (net)251,90090,600
Patents (net)025,300Customer listGoodwill
Total assets$1,548,467$607,400$0
Liabilities(392,211)(173,700)
Common stock(300,000)(100,000)
Noncontrolling interest 1/1Noncontrolling interest 12/31
Retained earnings, 12/31(856,256)(333,700)
Total liabilities and equities$(1,548,467)$(607,400)$0$0$0
Expert Answer:
Acquisition Date Fair Value allocation and excess amortization Consideration Transferred Fair Value ... View the full answer
Advanced Accounting
ISBN: 978-1259444951
13th edition
Authors: Joe Ben Hoyle, Thomas Schaefer, Timothy Doupni
